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08/27/2014

Southeast Housing Update: Exploring the Recent Slowdown

Following several months of somewhat disappointing reports on home sales and housing starts, we decided that it was time to ask the residential brokers and builders who participate in our monthly housing market poll to revisit the factors that may be contributing to slower-than-hoped-for growth.

When housing’s momentum began slowing in mid-2013, many contacts pointed to rising mortgage rates as the reason. Then in early 2014, many attributed the continued sluggishness to inclement weather. Although it seemed that weather did, in fact, play a role, our business contacts reported that less affordable buying conditions (for example, higher rates and prices) and limited inventory were greater culprits.

So what is the reason now? Our latest poll results suggest that contacts continue to believe that less affordable buying conditions and limited inventory—plus tight credit conditions—are the main factors behind the slowing activity (see the table).

Factors Influencing the Slow Growth of the Housing Market

Although the results of this special question help us as we think through what might be contributing to the weak growth, it is important to acknowledge that the incoming data (and upwardly revised data from the past few months) suggest that housing activity might not actually be slowing to the degree we previously thought. And in fact, a quick look at the latest poll results (without considering the special question) might also lead one to conclude that regional housing market conditions remain fairly positive. To explore the latest results in more detail, please view our Construction and Real Estate Survey results.

Note: The latest poll results reflect activity in July 2014 and are based on responses from 44 residential brokers and 16 homebuilders and were collected August 4–13. If you would like to participate in this poll, please consider signing up.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


August 27, 2014 in Economic conditions, Housing, Inventories, Prices, Real Estate, Southeast | Permalink

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06/25/2014

The Growing Gulf Coast: Good Signs despite Low Sales

The weather is not the only thing about to heat up along the Gulf Coast. The economy is warming up as well, according to the Regional Economic Information Network’s (REIN) contacts. The REIN team in the Atlanta Fed’s New Orleans Branch reaches out to leaders from large and small businesses from all sectors of the economy and to representatives from community groups along the Gulf Coast in order to gain a representative picture of regional economic conditions, which, by the way, appears to be markedly improving. Since mid-April, we’ve held 15 one-on-one interviews, one roundtable with a mix of business leaders, our branch board meeting, and we also attended several conferences.

According to our contacts, business sentiment has picked up. Most of them were optimistic about near-term (three to six months) and medium-term (two to three years) growth and were more confident in their outlook than in the recent past. Of contacts who indicated they were experiencing second quarter growth, approximately half believed the growth was a rebound from an unusually weak first quarter, with the other half attributing it to a modest increase in economic strength.

Burgeoning capital investment was a consistent recent theme. A lack of “visibility”—or a firm’s ability to confidently predict future business conditions—was not reported as a significant inhibitor of capital investment. Nearly every contact shared information about merger and acquisition (M&A) activity or capital expenditure projects under way or planned for 2014. Most projects involved expansion to meet growing demand, including constructing new facilities and upgrading existing ones, although several projects involved new product offerings. Consistent with the recent trend along the Gulf Coast, much of the increased investment stemmed from the energy sector. However, we noticed investment picked up in other industries, such as in education and medical services.

Business contacts also reported that spending on consulting services for leadership development and organizational culture training increased. The addition of new leaders, M&A activity that resulted in conflicting organizational cultures, and the recession-era deferral of discretionary spending generated a surge in demand for these services.

Residential real estate across the Gulf Coast picked up marginally since mid-April. The median residential home sale was around $200,000, though inventories were low. Homes in coastal Alabama’s high-end market (over $600,000) were slow to move, and a lack of high-end inventory in coastal Mississippi led to increased construction in that market. In past months, we heard reports of an increase in raw land deals along the Florida Panhandle, and similarly, a recent reemergence of raw land deals was reported in coastal Alabama, often 50 percent bank-financed with fully collateralized loans. Commercial construction also resurfaced in parts of the region.

Resting retail
Unfortunately, the general optimism was not shared by all sectors. Regional retail contacts shared dampened expectations for the second quarter. Some admitted to difficulty adjusting to a shopping landscape increasingly dominated by the internet, which forced big-box retail stores to rethink sales strategies and reevaluate store locations and sizes and in some cases led to resurgence in the redevelopment of shopping centers.

Bracing for the boom
The employment picture was heartening, with nearly all of our contacts implementing hiring plans. In fact, a few contacts who took steps to reduce employment to “lean and mean” levels during the recession and early recovery admitted they were not so sure the decision was advantageous, and recently they saw productivity increase significantly once they added workers. However, the continued shortage of skilled labor has many contacts worried that some project start dates may be pushed back as they struggle to find qualified people.

Most contacts continued to report isolated wage pressures for skilled labor, medical services, and professional jobs, though some expressed they are bracing themselves for significant wage pressure in the coming months as the economy picks up.

The chatter about plans to increase prices in recent months materialized into reports of price increases, yet contacts admitted the increases were challenging and required a great deal of negotiating.

Overall, the Gulf Coast economy appears to be rising out of the recessionary fog and shedding the winter frost. The picture across most industries was definitively positive, with reports of large investment projects, hiring plans, and price increases.

By Adrienne Slack, vice president and regional executive; Rebekah Durham, economic policy analysis specialist; and Harrison Grieb, economic intern, Regional Economic Information Network, all in the New Orleans Branch of the Atlanta Fed


June 25, 2014 in Construction, Economic conditions, Economic Indicators, Employment, Gulf Coast, Prices, Real Estate, Retail | Permalink

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05/30/2014

Southeast Housing Update: Sales, Prices, Construction Activity Spring Forward

The Atlanta Fed conducts a monthly poll of Southeast broker and builder business contacts in an effort to detect emerging real estate trends prior to the release of official government and other statistics. According to the April 2014 Southeast Housing Market Poll results:

  • There was a rebound in the number of brokers and builders reporting that home sales had increased from the year-earlier level.
  • More brokers but fewer builders noted that buyer traffic had increased from a year earlier.
  • Most brokers continued to indicate that inventory levels were down from the year-earlier level. The report from builders was split down the middle—half of respondents said that new home inventories increased from the year-earlier level, the other half noted new home inventory levels had fallen.
  • The vast majority of brokers and builders continued to report that home prices increased from a year earlier.
  • There was a rebound in the number of builders reporting that construction activity had increased from the year-earlier level.

To explore the latest poll results in more detail, please visit our Construction and Real Estate Survey results.

Note: April poll results are based on responses from 35 residential brokers and 26 homebuilders and were collected May 5–14, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity; negative values indicate decreased activity.

If you would like to participate in this poll, you may sign up here.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


May 30, 2014 in Construction, Housing, Prices, Real Estate, Southeast | Permalink

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04/16/2014

Beige Book: Warming Economy Accompanies Spring’s Thaw

Eight times a year, each of the 12 Reserve Banks gathers anecdotal information on current economic conditions in its district through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Their findings are reported in the Summary of Economic Conditions, also known as the Beige Book. The report is published on the Federal Reserve Board of Governors' website about two weeks prior to each Federal Open Market Committee meeting.

The first sentences of the national summary and each Bank's report often receive much attention because the lead sentence tends to summarize economic conditions in that region.

Here is a compilation of the first sentence of the national summary and each Reserve Bank’s report:

  • National: Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. (A previous SouthPoint post also mentioned the weather’s effect on overall economic conditions.)
  • Boston: The First District economy continues to expand moderately, according to business contacts, although growth rates vary across sectors and firms.
  • New York: Economic activity in the Second District rebounded since the last report, as the harsh winter weather abated.
  • Philadelphia: Aggregate business activity in the Third District grew at a moderate pace during this current Beige Book period.
  • Cleveland: On balance, economic activity in the Fourth District declined slightly in the past six weeks.
  • Richmond: The Fifth District economy expanded moderately since our last report.
  • Atlanta: On balance, the Sixth District economy expanded at a modest pace from mid-February through March.
  • Chicago: Growth in economic activity in the Seventh District picked up in March, and contacts generally maintained their optimistic outlook for 2014.
  • St. Louis: Business activity in the Eighth District has declined slightly since our previous report.
  • Minneapolis: The Ninth District economy continued to grow at a moderate pace since the last report.
  • Kansas City: The Tenth District economy grew moderately in March, and most contacts were optimistic about future activity.
  • Dallas: The Eleventh District economy grew at a moderate pace over the last six weeks.
  • San Francisco: Economic activity in the Twelfth District continued to improve moderately during the reporting period of mid-February through early April.

As you can see, almost all districts are experiencing the same level of economic activity.

Here are some notable highlights from the Atlanta Fed's contribution to the Beige Book:

Consumer spending and tourism

  • District merchants reported an uptick in activity from mid-February through March following sluggish sales in January, which were widely attributed to the severe winter weather. Light motor vehicle sales grew modestly during the time period.
  • Hospitality contacts in areas negatively affected by the adverse winter weather saw improvements in activity.

Real estate and construction

  • Brokers reported home sales were mixed. Inventory levels continued to fall on a year-over-year basis, and the majority of contacts reported that home prices remained ahead of the year-earlier level.
  • The majority of builders reported that construction activity and new home sales were ahead of the year-earlier level. The majority of contacts continued to report modest home price appreciation.
  • District brokers noted that demand for commercial real estate continued to improve. Construction activity continued to increase at a modest pace from last year.

Manufacturing

  • Manufacturers reported increased activity across the region from mid-February through March. Significant improvements were cited in production and new orders.

Banking and finance

  • Bankers noted an increase in loan demand.

Employment

  • District payroll growth remained constrained from mid-February through March.

Prices and wages

  • Nonlabor input costs increased very slowly, with a few noted exceptions, including rising costs for developed land, construction materials, and food. Profit margins remained tight across most industries as contacts continued to report very little pricing power.
  • Contacts continued to indicate little wage pressure outside of some high-skilled positions.

The next Beige Book will be published June 4.

Photo of Teri GaffordBy Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department


April 16, 2014 in Construction, Economic conditions, Economic Indicators, Employment, Housing, Jobs, Labor Markets, Manufacturing, Prices, Purchasing, Real Estate, Unemployment, Weather | Permalink

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04/14/2014

Our Bread and Butter

It’s spring, which means warming weather, getting out the gardening tools, and convening the semiannual meeting of the Atlanta Fed’s Agriculture Advisory Council, which represents diverse agriculture and agribusiness interests across the Southeast.

Prices are always a topic of conversation at council meetings. This meeting was no exception, and here are some examples of what we heard:

  • Fertilizer prices are up.
  • Feed prices are down from last year’s highs.
  • Fuel costs have been stable over the last year.
  • Equipment and seed costs are up.
  • Beef prices are up, and some producers are considering increasing herd size because of favorable prices and lower feed costs.
  • The value on the very best farmland is holding up, but farmland prices may see some corrections, with the biggest changes expected on marginally productive land.

Citrus greening is reducing the supply of Florida oranges, and growers continue to seek ways to mitigate the effects of the disease. Even though costs for products that help fight the disease are up, growers are saying, “If you think it works, you do it.” Growers hope that new research funding included in the recently approved farm bill will help find a solution, but concern also exists that as production declines, processing infrastructure will be lost, which may make it challenging to expand in the future.

Foreign markets have also affected growers. For example, cotton prices are in flux as a result of China’s pricing policy, while dairy prices are enjoying an uptick because of China’s increased purchases. Poultry producers expect this year to be a good one. The poultry industry is setting export records, and producers are saying exports represent future growth.

Finding labor remains difficult for most producers, and the problem is no longer just finding the numbers they need but increasingly finding those with the necessary technical skills as well. Producers are encouraging local junior colleges to offer technical programs for farm workers: “We need fewer but better-educated laborers,” one source said. There is also a growing need for data-management skills. Many growers will outsource data management/analysis to big companies specializing in that area.

Council members agreed that the outcome of the newly signed farm bill remains uncertain as the details are worked out, but they anticipate large farm producers will have to significantly restructure their businesses.

Another challenge is coming from the consumer side, as buyers require unprecedented amounts of information about health and wellness and sustainability processes from agriculture producers. Advisory council members acknowledge that technology makes it possible to supply this information, but the group recognized the need for agriculture producers to have a seat at the table when discussing new requirements.

As the meeting drew to a close, we went around the table one last time, and these comments are among what we heard:

  • “We will get more efficient.”
  • “There will not be a lot of inflation in agriculture in the next year or two.”
  • “Agriculture will go through another cycle of de-peopling,” but “…as the labor required to produce is decreasing, value and next-step processing is not shrinking.”

As I reflect on all I heard that day, I know technology will continue to play a big role in agriculture production, and its use is expanding every day. I also know from talking with our council members that good old-fashioned tenacity, know-how, and the love of farming shine through. The continued marriage of these disciplines will literally be our bread and butter for years to come.

Photo of Teri GaffordBy Teri Gafford, a Regional Economic Information Network director in the Atlanta Fed’s Birmingham Branch


April 14, 2014 in Agriculture, Commodity Prices, Outlook, Prices, Productivity, Southeast, Technology | Permalink

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02/27/2014

Southeast Housing Update: Modest Improvement Continues

According to the latest results from our Southeast housing market poll, contacts continued to indicate that growth remained positive. More than half of our Southeast builder and broker contacts reported that sales increased modestly on a year-over-year basis (see the chart).

January 2014 Southeast Home Sales vs. a Year Earlier

Many builders indicated that buyer traffic had increased on a year-over year-basis. Reports from brokers were mixed (see the chart).

January 2014 Southeast Buyer Traffic vs. a Year Earlier

The majority of our Southeast builder panel indicated that inventory levels had remained unchanged from year-earlier levels, although most of our Southeast broker panel indicated that inventory levels had fallen from year-earlier levels (see the chart).

January 2014 Southeast Home Inventory vs. a Year Earlier

Most brokers and builders continued to report that home prices had increased slightly in January compared to year-ago levels (see the chart).

January 2014 Home Price vs. a Year-ago

Two-thirds of brokers reported that the amount of available credit either met or exceeded demand (see the chart).

Brokers: How available do you perceive mortgage finance to be in your market?

Similarly, two-thirds of builders indicated that the amount of available credit met or exceeded demand (see the chart).

Builders: How available do you perceive mortgage finance to be in your market?

It’s worth noting that while this picture hasn’t drastically improved over time, it hasn’t deteriorated much either despite the recent implementation of mortgage regulations (for example, thequalified mortgage rule, which went into effect on January 10). We plan to keep a close eye on this question as the year unfolds.

Residential construction update
Our builder contacts indicated that construction activity increased slightly on a year-over-year basis but remained unchanged month over month. Nearly three out of four builders reported that activity was in line with their plan for the period.

You may recall from previous SouthPoint posts that builders have faced challenges securing acquisition and development financing for lot development (here) and that builders identified lot availability as one of the biggest risks to their outlook (here). We posed a special question to our builder panel in an effort to gain more insight into the current lot inventory situation. Here are a few of the main takeaways:

  • Overwhelmingly and regardless of the market, builders reported that finished lots are extremely hard to come by in desirable locations. With few finished lots in the most desirable areas, many builders have moved to B and C locations for vertical construction. (B locations have become the new A locations, and C locations have become the new B locations.)
  • As a result of the increased demand for finished lots in good locations, contacts indicated that lot prices were appreciating rather quickly, and that this rate of price appreciation was problematic because the added cost on the front end does not align with the valuation that can be achieved on the back end.
  • A few builders reported that they were in the process of developing new lots in A locations, but many more contacts noted that it was cost-prohibitive to develop raw land in any location at this time. The latter group reported that private acquisition and development money was available to fill the void that banks have left but noted that it was more expensive and would significantly raise the cost of development to the point where it becomes no longer viable. No one on the builder panel seemed to think that it would be viable to develop raw land in B and C locations at this point.

Outlook on sales and construction activity
Over the next three months, most builders and brokers expect home sales to increase. Although expectations remain fairly positive, contacts were slightly less optimistic about sales growth relative to their year-earlier responses (see the charts).

Southeast Builder Home Sales Expectations Next 3 Months

Southeast Broker Home Sales Expectations Next 3 Months

Nearly two-thirds of builder contacts expect construction activity to increase over the next three months. With that said, builders’ outlooks appear to be slightly less optimistic relative to their year-earlier responses.

Southeast Builder Construction Expectations Next 3 Months

Note: January poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected February 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


February 27, 2014 in Construction, Economic conditions, Economic Indicators, Housing, Inventories, Prices, Real Estate, Southeast | Permalink

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02/04/2014

Southeast Commercial Construction Update Strikes Upbeat Note

The Atlanta Fed’s fourth quarter 2013 commercial construction poll results were fairly optimistic. The majority of commercial construction contacts indicated that pace of nonresidential construction activity (measured by square feet) and the pace of multifamily construction (measured by number of units) had increased from year-earlier levels (see the charts).

Pace of Nonresidential Construction Activity (sq ft) versus a Year Ago

Pace of Multifamily Construction Activity (# of units) versus a Year Ago

Most contacts reported backlogs greater than year-earlier levels, suggesting a healthy pipeline of construction activity (see the chart).

Backlog versus a Year Ago

More contacts reported upward pressure on labor costs than in previous polls (see the chart). Perhaps not surprisingly, this trend of upward pressure on labor costs for commercial contractors is consistent with our recent reports (here and here, for example) of upward pressure on labor costs for residential builders.

Labor Costs versus a Year Ago

Most contacts also noted upward pressure on material costs and have consistently reported this pressure several quarters in a row (see the chart).

Material Costs versus a Year Ago

Relative to recent polls, the number of respondents reporting that the amount of available credit exceeded demand increased; the number of respondents reporting that the amount of available credit fell short of demand also increased (see the chart). Another way of viewing the results is that more than half of the respondents indicated that amount of available credit met or exceeded demand, which has been the case for three consecutive quarters.

How available do you perceive commercial construction finance to be in your market?

When asked what type of projects will dominate the landscape during 2014, business contacts indicated that they plan construction activity across a wide variety of property types. The property types mentioned include multifamily housing/senior housing, education, office, health care/medical, infrastructure/energy, retail/restaurant, municipal buildings, hotels, and industrial/warehouse.

Note: Fourth quarter 2013 poll results were collected January 6–15, 2014, and are based on responses from 19 business contacts. Participants of this poll included general contractors, subcontractors, lenders, developers, and material fabricators with footprints of varying sizes across the Southeast.

If you are a commercial contractor and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department


February 4, 2014 in Construction, Housing, Prices, Real Estate, Southeast | Permalink

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01/28/2014

Are the Clouds Lifting in the Sunshine State?

Each month, the Atlanta Fed produces a Data Digest for each state in our district. Beyond providing an economic snapshot for each state, the Data Digest also breaks down the information by metro area or industry, where appropriate.

Florida’s latest Data Digest indicates that the state’s overall economic activity is improving. For example, a broad measure of economic performance—the Coincident Economic Activity Index, which the Philadelphia Fed compiles for all 50 states—has been steadily improving since 2010 and improved at a slightly faster clip than the nation since August 2013 (see the chart).

140128a

Looking at Florida’s labor markets, you can see that the state’s unemployment rate has improved from a peak of 11.4 percent in early 2010 to under 7 percent in November 2013 (see the chart). In addition, the state has regained more than half of the jobs that were lost during the downturn. The leisure and hospitality, education and health care, and retail trade sectors have more jobs today than prior to the downturn. Regarding the first sector, my Atlanta Fed colleague Gloria Guzman wrote in a previous SouthPoint post that the leisure and hospitality sector has been a significant contributor to Florida’s economic recovery. Meanwhile, employment in the manufacturing and construction sectors still has a long way to go before full recovering can be declared.

Employment Loss and Gain by Industry: Florida, November 2013

The University of Florida’s Bureau of Economic and Business Research reported that although consumer confidence is off its recession lows, improvement has stalled. Despite that slowing, Florida sales tax revenue continues to rebound (see the chart). The Florida Department of Revenue notes that sales tax has been positively affected by the healthy activity in the leisure and hospitality sector.

Florida Sales Tax Revenue and Consumer Confidence, November 2013

The Atlanta Fed’s monthly real estate poll of homebuilders and brokers has noted improving home prices, and other data confirm this trend in Florida. The state has experienced an improvement in home prices of 8.4 percent from November 2012 to November 2013, according to the Federal Housing Finance Agency. Furthermore, the S&P Case-Shiller home price index shows similar trends in Miami and Tampa (see the chart).

S&P/Case-Shiller Home Price Index, through October 2013

Our monthly real estate poll also showed a rebound in residential construction (see the chart). Data from the U.S. Census Bureau confirm this trend, although it is important to note that activity is well below the prerecession peak. Although we do not expect a return to 2005 levels of activity, the steady rebound in new home construction is another signal of the state’s overall economic recovery.

New Residential Home Construction Permits, November 2013

Florida’s economy is clearly moving in the right direction. The Atlanta Fed’s surveys as well as regular input from business leaders and economic data all point to a steady rebound.

By Marycela Diaz-Unzalu, an economic and financial education specialist in the Atlanta Fed’s Miami Branch


January 28, 2014 in Construction, Employment, Florida, Housing, Prices, Real Estate | Permalink

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01/24/2014

Housing Continues to Rebound

The Atlanta Fed’s December 2013 Southeast housing market poll results show ongoing progress in the housing recovery. The majority of builders and brokers reported that sales on a year-over-year basis continued to be flat to slightly up (see the chart).

December 2013 Southeast Home Sales vs. a Year Earlier

After several months of reports of declining buyer traffic, most brokers and more builders indicated that buyer traffic was up on a year-over-year basis (see the chart).

December 2013 Southeast Buyer Traffic vs. a Year Earlier

The majority of brokers continued to report that home inventory levels had fallen from year-earlier levels, and most builders reported that inventory levels remain unchanged (see the chart).

December 2013 Southeast Home Inventory vs. a Year Earlier

The majority of brokers and builders indicated that home prices increased slightly in December (see the chart).

December 2013 Home Price vs. a Year-ago

Builders continued to indicate upward pressure on labor costs. More than 90 percent of builders reported that labor costs had increased in December 2013, compared with less than 80 percent in December 2012 and roughly 40 percent in December 2011 (see the chart).

Southeast Builder Labor Costs vs. One Year Ago

While half of all contacts reported that the amount of available credit is equal to demand, just shy of half reported that the amount of available credit falls short of demand (see the charts).

Brokers: How available do you perceive mortgage finance to be in your market?

Builders: How available do you perceive mortgage finance to be in your market?

Most contacts continued to report that the available construction and development finance falls short of existing demand (see the chart). Even so, several contacts commented that when the components of construction and development finance are broken out, credit for the vertical construction of structures is fairly available, but obtaining credit for lot development remains challenging.

Builders: How available do you perceive construction & development finance to be in your market?

During the next three months, builders expect sales growth to be flat to slightly up, and brokers’ expectations are mixed (see the charts). Expectations remain fairly positive overall, however; fewer contacts are as optimistic about sales growth as they were one year ago.

Southeast Builder Home Sales Expectations Next 3 Months

Southeast Broker Home Sales Expectations Next 3 Months

More than half of all builders expect activity to increase over the next three months, but the outlook is more subdued than a year earlier (see the chart). Fewer builders expect construction activity to increase over the next three months compared to one year ago.

Southeast Builder Construction Expectations Next 3 Months

Note: December poll results are based on responses from 44 residential brokers and 24 homebuilders and were collected January 6–15, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.

If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst in the Atlanta Fed's research department



January 24, 2014 in Construction, Housing, Prices, Purchasing, Real Estate, Southeast | Permalink

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01/16/2014

The Beige Book Looks Rosy

The Federal Reserve released the first Beige Book of 2014 on January 15. To prepare the Beige Book—published eight times per year—each Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources.

The first paragraph from the national summary began with this sentence:

Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand across most regions and sectors from late November through the end of the year.

The Atlanta Fed was one of two Reserve Banks that saw conditions improve compared with the previous reporting period. Overall, we said that “[b]usiness contacts indicated that from late November through December overall economic conditions improved moderately in the Sixth District.”

Below are highlights from our report, beginning with the important sections on employment and inflation:

  • Businesses did not indicate a significant pickup in hiring, nor did they report any staff reductions. Businesses continued to employ technology and utilized overtime and contract labor as an alternative to increasing permanent staff. Contacts in manufacturing, construction, professional, and energy sectors report persistent difficulty in finding qualified workers. On balance, many firms expressed continued hesitancy caused by concerns about healthcare reform in terms of their overall hiring plans.
  • Cost pressures remained mostly stable, according to business contacts. Healthcare was the most cited exception, with reports of larger cost and price increases than usual. Merit increases remained in the 1 to 3 percent range. However, skilled and professional positions in energy, construction, information technology, and logistics continued to see above-average wage increases and higher starting pay. Year-ahead unit costs expectations were 1.9 percent in December, unchanged for the fourth consecutive month, according to the Atlanta Fed's survey on business inflation expectations.

Most sectors of the regional economy reported a solid start to the new year:

  • District merchants noted positive year-over-year holiday sales growth, with online sales outpacing traditional store sales.
  • The hospitality sector continued to experience the same solid pace of activity that it had all year long.
  • Residential housing brokers noted that existing home sales growth continued to slow, while homebuilders experienced modest growth in new home sales.
  • Commercial contractors described construction activity as improving, especially in the multifamily segment of the market.
  • Manufacturers indicated that overall activity strengthened since the previous report.
  • Capacity utilization in the energy industry remained near historic highs, and deep water oil exploration in the Gulf of Mexico increased.

Atlanta Fed business contacts held a positive outlook heading into 2014. Atlanta Fed President Dennis Lockhart shared this view in a speech delivered to the Rotary Club of Atlanta on January 13, where he said:

I expect the stronger pace of economic growth in the second half of 2013 to continue in 2014. My current view is that real GDP will expand between 2.5 and 3 percent this year, and I would not be surprised if we achieve results at the upper end of this range.

A new year often breeds optimism, sometimes misplaced. But based on our view of the data and what our business contacts are saying, we think that being optimistic this January is justified.

Photo of Michael ChrisztBy Michael Chriszt, a vice president in the Atlanta Fed’s public affairs department


January 16, 2014 in Economic Indicators, Employment, Growth, Housing, Inflation, Manufacturing, Prices, Productivity | Permalink

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